Two Years and
Moving ForwardInterview with
AIOC President Terry Adamsby Betty Blair

Photo:It's been two years now that AIOC
(Azerbaijan International Operating Company) has been in operation.
What do you feel you've accomplished so far?

December 12 marks AIOC's second
birthday. I think it's auspicious that it's my father's birthday
as well! These past two years have gone by so quickly. Accomplishments?
Well, we've been trying to push forward simultaneously in four
major areas.

First of all, we were commissioned
to "kick start" a very important project from a baseline
position. As you know, AIOC is made up of 12 distinct companies
representing eight different countries. Not only did we have
to achieve rapid business alignment, but cultural consensus as
well.

Secondly, we had to determine
quickly whether or not we could actually deliver and work together
with Azerbaijan in an "untested" Baku environment.
In other words, could we synthesize two very diverse business
paradigms between the Soviet heritage of Azerbaijan and the business
practices of the West. We have been successful in this, as SOCAR
(State Oil Company of Azerbaijan) and AIOC are now working extremely
well together as a team. However, had there not been mutual respect,
understanding, tolerance and cooperation, nothing would have
been achieved.

Thirdly, we have to create an
export system to get Azerbaijan's oil to the international market.
As you know, we're currently working on two alternate routes
for the export of "early oil": one north through Russia
to the port of Novorrosysk and the other through Georgia, both
to the Black Sea. The first will be operational by January 1997;
the second will be completed by the end of 1998. The successful
negotiation of these Transport and Intergovernmental Agreements
was the turning point for the whole project last year, and has
been the trigger for the new business boom we are currently seeing
in Baku.

Finally, we have been continuously
positioning ourselves for the future with our main objective
in mind-the full field development of the Azeri, Chirag and deep-water
Gunashli (ACG) deposit. By mid-1997 we anticipate submitting
a completed Field Development Plan on behalf of our shareholders
to SOCAR and to the government of Azerbaijan.

The main phase of the project will require a total of $8 billion
of investment, which promises to deliver an estimated reserve
of some 3.8 billion barrels of light, sweet oil and at least
2,300 billion cubic feet of associated gas for use by Azerbaijan.
Currently, we're on target with all our project goals, and I'm
very proud of the AIOC team for what they've achieved so far.
We're soon to be in the oil export business, and we're currently
production-testing our first appraisal well.

Let's go back to the "Soviet
Paradigm" that you were referring to. What did you mean
by that?

Well, if you look back at global
history over the past 50 years, the world has been dominated
by two superpowers, the United States and the Soviet Union. Essentially,
global competition arose between two political and social philosophies
which were based on very different ways of thinking. The "Soviet
Paradigm" was centrally planned, which generally did not
allow much room for individual flexibility.

It resulted in a political management style that, at best, is
characterized as "authoritative." Decisions were made
at the top, and very little authority was delegated. Likewise,
when problems arose, there was a tendency to assign blame, rather
than seek solutions. In the West, with the evolution of a more
democratic style of government, individuals and their rights
became the political focus. And the contrast between these two
very different systems is exactly what we were facing two years
ago.

Intellectually, we were fully
aware that these two different paradigms could cause us considerable
difficulties. In addition, we also faced significant language
and cultural barriers. From the extended negotiation process
between SOCAR and our shareholders, we recognized that we had
two very different management styles. Not surprisingly, there
was distrust between our two groups at the beginning. Nevertheless,
we both knew that our final objective was the same, despite our
different visions of how to accomplish it-that of achieving the
early production and export of oil for Azerbaijan and our shareholders.

But now two years later, I can
say with all honesty that the two management teams of SOCAR and
AIOC are working in tandem. There is great mutual respect between
us, as well as understanding and trust. This is probably the
most successful thing we've accomplished so far in Azerbaijan.
It's the foundation upon which we can build the future together.

How did you do it?

Through hard work, through friendship,
and through trying to put ourselves in the other person's shoes.
Initially, I'd say we probably tried harder than they did, but
now I think they try much harder than we do. Both groups have
changed fundamentally over these past two years, but most of
all, we now feel genuinely comfortable with each other.

You know, there are so many
things that can be open to misinterpretation and misunderstanding
when you're working in cross-cultural situations. It's a continual
educational process. That's why when two teams start talking
to each other and demonstrating respect for each other, things
begin to work. And when you party together, things start to happen.
Azerbaijanis are fun-loving people, and Caucasian dancing is
probably one of the best known ways to rid yourself of frustrations.

So the way to produce oil
in Azerbaijan is to party together! But you didn't start out
that way, did you?

No. I recall the first Steering
Committee Meeting between SOCAR and our shareholders back in
January 1995. It was both confrontational and difficult and resulted
in misunderstanding. For example, to a Westerner a budget is
an estimate of expenses to cover what you expect a project will
cost. In the Soviet system, budgets were perceived as something
fixed. If you either exceeded or undershot them, it was cause
for blame.

However, in the Western view,
if your work is not well-defined at the beginning of a project,
simply because it's impossible to know exactly what the final
requirements will be, then you are expected under the circumstances
to make your most intelligent estimate. In January 1995, international
contractors coming to Azerbaijan could not assess their potential
costs. Consequently, they cushioned their estimates to ensure
that they did not suffer risk. So, there was a lot of misunderstanding
between the partners on how we should go forward and what would
be the cost.

And the Steering Committee
Meeting last week (October 9, 1996) with Azerbaijani officials,
how did it go?

The contrast between the two
meetings after working together for two years was dramatic. There
was total alignment and full understanding between the two management
teams. The Chairman of the meeting, SOCAR's President Natig Aliyev,
led the debate, and each foreign oil representative that was
present commented on the professionalism of SOCAR and their government
representatives.

So times have changed. Our SOCAR
friends have changed, and we've changed, too. There's no fundamental
difference between the two teams, either socially, intellectually
or professionally. Clearly, SOCAR has a very different set of
management challenges than we do. But I admire what the SOCAR
management achieves with the limited resources at their disposal.
Although AIOC is SOCAR's main business priority right now, we
are not the only company that they must deal with. There are
other contracts and other service companies, plus many other
distractions vying for SOCAR's attention. Somehow, they succeed
despite all the difficulties.

SOCAR has a small decision-making
team?

It's a very small team, but
it delivers a very large volume of work. It's impressive. It's
really impressive.

So together you're developing
a new business paradigm, a synthesis of the best of both Soviet
and Western models?

A synthesis is emerging, though
at the same time, we're both maintaining our individuality. It's
very simple. Unless we are fully aligned as two management teams
and unless Azerbaijan succeeds, then no one will succeed. But
if Azerbaijan does succeed, then we all win. We're all working
together for the same common good.

Azerbaijanis have a proverb:
"Wish your neighbor two cows, so you can have one of them,"
meaning that if your neighbor is successful, you, too, will benefit.

Then for Azerbaijan and its
people, let me wish them four cows!

What's happening with the
pipeline route? You say the "northern route" will be
operational by the end of this year?

As you know, AIOC is already
developing two export routes for "early oil." The "northern
route" through Russia reverses a pipeline already in existence
between Baku and the Black Sea port city of Novorossyisk. This
route passes through Grozny and Tikhoretsk. The section through
Azerbaijan will be operational by the end of this year for the
transfer of Azerbaijan's oil, and SOCAR has already chosen the
first oil to go north during the first quarter of 1997.

Does the Chechnyan conflict
impact the export of Azerbaijani oil?

AIOC primarily has one responsibility,
which is to transport Azerbaijani oil to the Russian border,
at which point custody will be transferred to the Russian transport
company, Transneft, which owns the transport systems for all
of Russia. They will then deliver the equivalent amount of oil
to Novorossyisk. Internal transfer of oil is the responsibility
of Russia, and we have been fully reassured by Transneft that
they will fulfill their obligations. They are a very good pipeline
company.

So if they run into difficulty
around Grozny, they can utilize alternative supplies and routes?

They can take Azerbaijani oil
in whichever direction they wish, as long as Azerbaijan gets
the equivalent delivered to a tanker at the Novorossyisk port.
But I'm sure you've seen recent reports in the media of the positive
developments that are happening in Grozny. I think it bodes well
for the future.

Is there a specific quality
of oil that must be delivered to AIOC at Novorossyisk?

No, simply the equivalent amount
of crude. At this time, quality is not the issue between ourselves
and Transneft.

Does the same rule apply
to Georgia in regard to AIOC's responsibility to guarantee the
transport of oil only to the border?

No. In this case, AIOC operates
the pipeline from coast to coast between Azerbaijan and Georgia.
We'll be transporting Azerbaijani oil and, perhaps, even third-party
oil from other contracts in the Caspian, from Turkmenistan and
from Kazakhstan. Under our pipeline lease agreement, AIOC and
SOCAR will have the first priorities for export in this pipeline
for the next 30 years. Clearly, we'll follow standard commercial
arrangements. We're targeting to have this system operational
in 1998.

Why is the western route
through Georgia slower in becoming operational?

Because rehabilitation of this
route is technically more complex than the northern route. We'll
have to build a new terminal on the Georgian coast at Supsa.
And between Tblisi (capital of Georgia) and the Georgian coast,
the line is old and has been damaged. Also, new sections will
have to be built between Akhstafa (Azerbaijan) and Tblisi to
connect the two systems.

How has the line been damaged?

Since independence, Georgians
have suffered immensely from economic hardships. Not only was
the original line constructed some 20-30 years ago, but people
have been making many illegal taps into it to obtain access to
fuel for heating. We've already identified between 800-900 such
taps. Simply put, individuals have been puncturing the line to
create their own fuel supply. This is not surprising under the
circumstances!

Let's talk about Armenia,
another of Azerbaijan's neighbors. Will they benefit from Azerbaijan's
oil?

That's a question you should
be asking the politicians, not us. Clearly, we cannot be directly
concerned with issues relating to Armenia. And although the Armenian-Azerbaijani
conflict has truly been forgotten in the international community,
for the Caucasus, it remains both a political and economical
tragedy. Unless the issue of Nagorno-Karabakh can be settled
fairly, perhaps of necessity to the disadvantage of both parties,
then it will be very difficult for the region to evolve economically.
Stability is critical.

But in the meantime, the
pipeline is being developed through Georgia, and all the infrastructure
is being built up between Azerbaijan and Georgia?

Yes, the geography of the Caucasus
allows for Georgia and Azerbaijan to be intimate partners in
this respect. There is a natural logistical corridor that links
the Caspian to the Black Sea. In the short term, it has proved
to be a crucial link for importing equipment and materials to
support our project, as well as being the natural path for a
pipeline to carry our first oil westwards.

This route may or may not also
become a viable option for the long-term major oil export that
will inevitably follow. But at this point in time, to develop
a pipeline through Armenia is simply not politically feasible.
As U.S. Ambassador Kauzlarich has said, "Peace could bring
a pipeline, but a pipeline won't bring peace."

One of Turkey's key initiatives
is to have the pipeline cross Turkey to its port of Jeyhan on
the Mediterranean. A pipeline from Georgia through Turkey directly
to the Mediterranean is clearly feasible from a technical point
of view. What will determine whether or not it gets built will
be broad, regional, commercial considerations. If such a pipeline
would provide a better commercial option to investors than perhaps
alternative bypass options to the Bosphorus, then it will be
chosen. But in this context, the future of the Bosphorus is critical.

Long-term northern export routes
from Baku are being evaluated, and we are watching what develops
with the Caspian Pipeline Company (CPC) in their business to
the north. So, for any future long-term export solution, commercial
realities will dictate the eventual outcome. This point was made
to President Aliyev, but it was also acknowledged that political
considerations could not be ignored. An effective balance between
all these issues must be achieved.

A lot of foreigners are starting
to come to Azerbaijan. Any advice for newcomers?

I think Baku is very different
now than it was two years ago. The most obvious changes relate
to social infrastructure such as in medical services, housing,
hotels, supermarkets and restaurants. These days, there is access
to all sorts of items and conveniences that didn't exist two
years ago, which relieve a lot of the pressures of living in
a foreign country. In addition, we all enjoy the richness of
quality cultural events such as opera, ballet and all the other
performing arts. Baku is quite unique in this respect.

Do you often talk to other
people who are developing projects in the former Soviet Union,
and compare notes?

That's a good question. Strangely
enough, no. When one begins to work with AIOC in this special
part of the world, one tends to forget that there are other projects
out there, as our own is so "all-absorbing." We have
to focus intensely in order to implement a very ambitiously paced
timetable for ACG, and we must ensure that it works well. We
do monitor developments in the CPC very carefully, however.

I think the 4-hour presentation
that was given to the President last week (October 10, 1996)
shows the tremendous range of activity that is going on in AIOC.
This includes technical complexity, social complexity and the
logistical complexity of bringing the necessary materials from
all over the world.

Very few people realize how much complexity is actually involved.
A year ago, we didn't have an efficient office in which to work.
This has been solved, along with the creation of other extensive
infrastructures. And now we're actually drilling offshore. Project
construction work is going on as well. Everything is working,
and it's working well. And this has happened because of the total
cooperation and commitment of our own people and of the oil workers
of Azerbaijan.

How large is your staff now?

It includes some 120 expatriates
and about 375 Azerbaijanis. There are also more than 1,000 Azerbaijanis
working for us as AIOC subcontractors. Our organization began
with five expatriates and 15 Azerbaijanis in January 1995. It's
a remarkable achievement, and everyone, without exception, is
to be commended for making it work.

How many hours do you work
each day?

Too many. But that goes for
everyone else on the project. The management team and our shareholders
are seriously concerned about staff burnout.

But the most important thing
is for everyone to remain focused and to do what needs to be
done. We're essentially here for one purpose-that's to have the
"early oil" system operational next year.

You've worked in a lot of
places. How do you find Azerbaijan in relation to the other places
you've worked?

I've worked more than 30 years
in the Far East, the Middle East, Europe and the United States,
and I'd have to admit that the Azerbaijani community has the
most highly educated and most culturally rich population that
I've ever experienced.

For Azerbaijanis, high standards
of scientific education is clearly an inheritance of the Soviet
system. You also see this reflected in their highly developed
arts and culture. There seems to be an infinite supply of exceptionally
qualified performing artists-musicians, vocalists, dancers, and
actors-highly disproportionate to the size of its population.
The same applies to education.

Social position to a large extent
reflects personal educational achievement. To gain social respect,
you must be cultured and educated. The Academy of Sciences and
the other senior institutes in Baku have developed a social order
similar to what used to exist in Western Europe, but which has
gradually disappeared. Here, an academician is a person of real
influence and power. Such a system demands respect.

The next issue of our magazine
is dealing with youth. I know that AIOC has been hiring a lot
of young people lately. What is your perception of them?

Here, we catch a glimpse of
the future. I see energetic, extremely well-educated young people.
Most of the ones that we recruit are tri-lingual-proficient in
Azeri, Russian and English. You see high levels of motivation,
commitment and a real desire for Azerbaijan to succeed-both for
themselves, for their families and for their country.

You feel their optimism?

Yes, we see very little pessimism
among these young people, and as conditions improve, their enthusiasm
increases. Major improvements in their economy will take time.
But not once in two years have I ever heard an Azerbaijani complain
about their current situation. I really admire these people,
especially during these difficult times.

For you, personally, presiding
over AIOC has been a unique experience, hasn't it?

Yes, it's very exciting during
this new phase of oil industry development. Also, we have made
many Azerbaijani friends and have met many interesting and important
people. Access to heads of state is not normally a part of the
everyday life of an oil company executive, but it is here. I've
certainly learned a lot, and enjoyed it immensely.

It's been challenging to work
with AIOC and its 12 shareholders. I can think of no other project
in the world that matches its complexity. But let me emphasize
one thing: nothing happens without people, and the people of
SOCAR and AIOC together are, in my opinion, delivering an exceptional
program.